Market-based Approach to Carbon Dioxide Emissions Launched

Ten Northeast and mid-Atlantic states launched the Regional Greenhouse Gas Initiative (RGGI) on Sept. 25, 2008, with New York Gov. David Paterson ringing the ceremonial New York Mercantile Exchange bell in Manhattan. The initiative, pronounced "Reggie," requires the owners of more than 200 fossil fuel power plants to pay for the excess carbon dioxide they emit. This is to be accomplished via an auction held by the 10 participating states. The goal is to give power plants a financial incentive to reduce carbon dioxide pollution, which is a known contributor to global warming.

The RGGI states established a cap on the amount of carbon dioxide emitted by power plants that are 25 megawatt-hours or larger. In order to exceed the allowance, power plant owners are able to purchase a higher cap through the auction. According to New York's press release, the auction process makes carbon dioxide allowances a commodity that carbon dioxide emitters can buy, sell or trade.

Participating states will invest the revenue from the auctions into endeavors like energy efficiency programs and renewable energy stimulus efforts.

RGGI is the first mandatory program to reduce power plant carbon dioxide emissions. The emissions cap will be lowered by 2.5 percent each year between 2015 and 2018, resulting in a 10 percent decrease.

The ten participating states are: New York, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island and Vermont.

"I believe that RGGI is a perfect example of how we - as states - can leverage our ability to tackle the complex challenges of clean energy and climate change by joining in regional collaboration," said New Jersey Gov. Jon Corzine in the press release. "These issues are among the most pressing facing governors in our region as we strive to resurrect a stable and prosperous economy and deliver a sustainable quality of life for our citizens."

The first RGGI auction was held Sept. 25, 2008, and offered 12,565,387 allowances issued by Connecticut, Maine, Maryland, Massachusetts, Rhode Island and New York. Purchased allowances can be used in any of the participating states regardless of which state issues them. The next auction is scheduled for December, and from then on they will be conducted quarterly.

According to Jonathan Schrag, executive director of RGGI, each allowance purchased through the auction gives the power plant the right to emit one ton of carbon dioxide. All of the allowances were sold at a clearing price of $3.07 each. The resulting $38,575,783 is being distributed to the six states that offered the allowances.

The remaining states that didn't offer allowances in the first auction will be participating by Jan. 1, 2009.